Tax cuts now could mean tax rises later, says minister

A minister admitted yesterday that taxes may have to rise in the long term to finance the short-term tax cuts that are to be announced shortly by the Government.

While Gordon Brown refused to rule out an eventual tax increase, the Employment minister, Tony McNulty, went further by saying that moves to get the nation's finances back into "equilibrium" over the long term could require higher taxes.

He told the BBC's Daily Politics : "We will see. It may well be that the economy gets out of this quicker than otherwise, tax receipts shoot up and... if there is a balance it may need to be found by taxation but that's a moot point at this stage."

Related articles

• Unemployment edges closer to two million mark
• Interest rates may drop to record lows in 2009
• Bankruptcy fear for small businesses starved of borrowing
• Hamish McRae: Cut taxes, but don't expect miracles
• Credit crisis diary: Try not to talk the market down, chaps
• 5,000 jobs axed as City forecasts 3m by 2010
• Jeremy Warner: Sterling crisis threatens Brown's reflationary plans
• Sainsbury's rises out of the gloom
• Brown to act over credit card rate rises
• Taylor Wimpey sees no prospect of recovery in the short term
• Slowdown in Chinese demand triggers Cookson profit warning
• Yell promises £100m cost-cutting package
• Starbucks blames UK for weak performance
• Virgin Media to cut 2,200 workers in next four years
• InterContinental Hotels revenues tumble
• Vodafone plans to save £1bn to survive recession and intense competition
• Jeremy Warner: Colao makes cash his main priority at Vodafone
• Leahy urges PM to do more to support struggling retailers
• G20 summit: New world order?
• Search the news archive for more stories

Mr Brown called for international action on tax cuts, saying that such a "fiscal stimulus" would be more effective than if Britain acted alone. Asked at a press conference whether taxes would have to rise in the long run, he replied: "We are in a period of huge uncertainty. Nobody quite knows whether the international action we are proposing will yield the results that we want to see.

"It is too early to judge conclusions about two years ahead, three or four years ahead. What I do know is the right time is to take action now, with the fiscal stimulus to the economy."

George Osborne, the shadow Chancellor, said Mr McNulty had let the cat out of the bag. "He's admitted that unfunded tax cuts now mean tax rises later. At least there's one Labour minister telling the truth today."

As the two main party leaders went head to head yesterday, Mr Cameron announced a £2.6bn scheme to give employers a £2,500 tax "holiday" through lower national insurance payments if they recruit someone who has been out of work for three months. He said the "keep Britain working" plan would create 350,000 jobs and would be funded through savings in unemployment benefit.

The Tory leader attacked the tax cuts planned by the Government as a "tax con". He said it would be "irresponsible" to raise borrowing to stimulate the economy. "It will saddle this generation and the next with a burden of debt that could take a decade or more to pay off. It means spending priorities shifting from schools and hospitals to servicing our debt. Irresponsible borrowing means more taxes on families and businesses in the years to come, putting a drag anchor on recovery," he said.

Mr Cameron gave a strong hint that he may tear up the Tories' pledge to match Labour's spending plans until 2011, which would allow him to meet Tory pressure to put "clear blue water" between his party and Labour.

But David Frost, director general of the British Chambers of Commerce, said of the Tory jobs scheme: "Companies are not in a position to think about recruiting staff right now. Businesses are shedding staff."

Nick Clegg, the Liberal Democrat leader, said his party would cut the basic rate of income tax by 4p in the pound, giving nearly £1,000 back to a worker who is earning £30,000 a year. Of the Government plan, he said: "It's meagre tax cuts today, giant tax rises tomorrow from Brown."

Tax: The ideas

Labour

"Targeted tax cuts" for lower- and middle-income families. Justified on the grounds that it would keep economy moving as people continue spending.

Conservatives

Would use interest rates, rather than tax cuts, to keep economy moving. Opposed to "unfunded" tax cuts and an "irresponsible" rise in borrowing.

Liberal Democrats

Can claim to be ahead of the curve as they called for big Obama-style tax cuts for lower- and middle-income families before the recession loomed.